Outlook: The energy complex has been slightly mixed this morning, as crude and ULSD trade in negative territory while nearby RBOB has traded both sides of even. The market seems to be taking a bit of a breather from the recent rally. Preventing steeper losses comes from bullish data released yesterday from the EIA, as they showed significant draws in both crude and distillate stocks last week. Outside markets are providing some support as well, as all three major equity averages are trading above even. Falling Covid-19 cases are also lending some support, as new infections are 24% lower than last week at this time, according to data from Johns Hopkins University. Deaths from the virus are also dropping, down about 10% when compared to the week prior. Giving the market some pause however is the monthly report from OPEC that was released this morning. The cartel has forecast that world oil demand will rebound more slowly than previously thought. The group predicts that demand will rise by 5.79 million bpd this year to 96.05 million bpd, which is a reduction of 110,000 bpd from the forecast released the prior month. OPEC also reduced its non-OPEC supply growth forecast to 670,000 bpd this year, down from 850,000 bpd previously. Tomorrow Baker Hughes will release its weekly rig count report, and the CFTC will release its Commitments of Traders report.
Crude
- According to the head of commodity research at Goldman Sachs, crude oil is being “swept up” in a commodity supercycle. Goldman Sachs has previously forecast that Brent crude would hit $65 per barrel in July. Brent crude has risen more than $20 per barrel since early November.
- According to data from the U.S. Department of Labor, first-time claims for unemployment insurance totaled 793,000 last week. Economists surveyed by Dow Jones anticipated 760,000 first-time claims. The worse than expected report is likely to add an even greater sense of urgency from Congress to pass a new relief bill, as unemployment benefits are scheduled to lapse in April.
- Shell is planning to eliminate net carbon emissions by 2050, which is an even more ambitious target the plan released in 2020, according to Reuters. Shell plans to curb its emissions through the growth of low-carbon businesses such as biofuels and hydrogen.
- A drug used to treat people with rheumatoid arthritis reportedly reduces the risk of death in hospitalized patients with severe cases of Covid-19, according to researchers at the University of Oxford.
- The March crude oil contract is trading $0.16 lower at $58.52. The 20-day and 100-day moving averages are $54.55 and $46.10, respectively. The 14-day RSI is 78.36%. An RSI above 70% indicates an overbought market from a technical perspective.
- As of 10:26 am CST: April Brent is down $0.07 at $61.40, the U.S. dollar index is 0.034 higher at 90.406, while the nearby e-mini S&P 500 futures contract is up 5.25 points at 3,908.25.
Diesel
- The March ULSD contract is trading $0.0024 lower at $1.7586. The 20-day and 100-day moving averages are $1.6524 and $1.3872, respectively. The 14-day RSI is 81.77%.
- Air traffic in China has fallen sharply in recent weeks. Despite the Lunar New Year holiday, travel in the country has been limited due to coronavirus travel restrictions. Scheduled airline capacity in China fell below 9 million seats for the week ending February 8, down from 13 million two weeks prior, according to OAG.
- Airline travel in the U.S. hasn’t improved much in recent weeks. After air travel demand peaked around Christmas and New Years, passenger volume has dropped to under 1.0 million travelers every day since January 4. Current demand is down about 65% when compared to last year at this time.
Gasoline
- The March RBOB contract is trading $0.0022 higher at $1.6556. The 20-day and 100-day moving averages are $1.5947 and $1.3218, respectively. The 14-day RSI is 71.68%.
- As I mentioned earlier in the week, a global shortage of semiconductor chips is having an effect on the manufacturing of everything from the PlayStation 5 to the Ford F-150. Automakers here in the U.S. are expected to lose a few billion dollars in earnings this year due to the shortage. Globally, that figure is expected to be around $60 billion in lost earnings for the automotive industry, according to consulting firm AlixPartners. IHS Markit anticipates that 672,000 fewer vehicles will be produced in Q1 of 2021 due to the semiconductor shortage.
- According to data from the U.S. Department of Transportation, vehicle miles traveled on interstate highways for the week ending February 7 was estimated at 13.0 billion miles, down 8% when compared to the year prior.
Propane
- Propane prices are mixed this morning. At last look Conway was down $0.0200, trading at $0.9600. Mt Belvieu was up $0.0175, trading at $0.8700.
- Yesterday the EIA reported that U.S. propane inventories fell 4.507 million barrels in the week ending February 5. They also reported that U.S. demand rose 714,000 bpd to 2.204 million bpd. Strong demand is likely equated to the bitter cold weather we’ve been experiencing. That cold weather is expected to last for about another week, which should continue to help boost demand for propane and provide a layer of support for prices.
Natural Gas
- The March Natural Gas contract is trading $0.049 lower at $2.862. The 20-day and 100-day moving averages are $2.716 and $2.854, respectively. The 14-day RSI is 59.32%.
- This morning the EIA released its Weekly Natural Gas Storage Report. They showed that working gas in storage fell 171 Bcf in the week ending February 5, which was a slightly smaller draw than anticipated. Natural gas stocks are 152 Bcf above the five-year average but are within the historical 5 year range.
Holiday Schedule: Energy markets will halt at noon CST on Monday, February 15 due to the Presidents Day holiday. CHS Energy Hedging will be staffed until noon.
